Seller’s Warranties

The Bigger Picture In Selling Your Business

Seller’s warranties are legally binding and enforceable statements about a business offered for sale which the vendor confirms are true and correct. Warranties obligate the seller to bear any liabilities covered after the business purchase is completed. Warranties and what they cover are open to negotiation between the seller and the buyer. However, once included in the Sale and Purchase Agreement (SPA) and the sale completed, warranties, like all other provisions in the SPA, are irreversible. As such, great care needs to be taken by both the seller and the buyer in agreeing what is specified and guaranteed as warranties in SPA.

It is worth noting that the more favourable warranties the seller gives the more assured the buyer will be with the purchase as well as even generate a valuation premium for the business and how much he/she is willing to pay in the end to secure the purchase. The seller however needs to be circumspect and tread cautiously not to commit to unbearable potential liabilities – the stark realities of which will only dawn long after the completion, if they occur.

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